New high for Dubai, while Abu Dhabi stalls

Dubai: The Dubai Financial Market General Index (DFMGI) advanced for the fifth week in a row, ending near the high of the week and above the prior week’s high. For the week, the index advanced 140.95 or 3.45 per cent to close at 4,229.04, a 22-week closing high. Volume improved, as it has for the past five weeks, to a 19-month high, the second highest monthly volume since June 2009. Most issues participated in the advance, with 22 gaining and eight declining.

A weekly high of 4,253.28 was reached on Thursday, putting the index right up against a resistance zone identified in two ways. First, there is previous weekly support or resistance from 4,231.12 to 4,270.43, that occurred in February and October 2014, which is where we may now see resistance. Then, there is the completion of an ABCD pattern or measured move, that occurs at 4,248.60, in the middle of the resistance price zone. A measured move is where, in this case, the second leg up off the December 2014 bottom appreciates by the same amount as the first leg up. The second leg up began from the March 3,232.79 low.

If the DFMGI can exceed last week’s high, it heads to the next potential resistance zone that starts around 4,385, previous support from November 2014. It then faces a range of potential resistance up to approximately 4,728.

Given that we are now starting the sixth-week of an advance, that has seen the index gain as much as 31.6 per cent from the March bottom, and 42.1 per cent from the December 2014 low, a pullback of some degree would not be unexpected. There are a number of areas to watch for support if it occurs.

On a weekly basis, a drop below last week’s low of 4,080.73, would signal further weakness. The next key support zone would then be from around 4,025 to 3,952, and includes previous resistance over a number of weeks from December 2014 through February, and both the 55-week exponential moving average (ema) and 200-day ema. That price zone also represents the top of an ascending triangle pattern, which the DFMGI broke out of three weeks ago.

If a new high does not occur before a pullback then a 38.2 per cent Fibonacci retracement of the five-week uptrend would complete at 3,863.45, essentially matching the current price of the 55-day ema (now at 3,865.12). It’s common for a retracement of a trend to complete at least 38.2 per cent of the prior move.

Abu Dhabi

Last week the Abu Dhabi Securities Exchange General Index (ADI) was essentially flat, ending 15.37 or 0.33 per cent higher to close at 4,647.12. Volume was only slightly below the prior week, while market breadth was positive, with 25 advancing issues and 12 declining.

For the past couple of weeks the ADI has been stuck in a range, just below a resistance zone from back in February and March, and support represented by the 200-day ema (now at 4,638.67) and 55-day ema at 4,614.44. It is lagging the DFMGI in this regard, as the DFMGI has seen a decisive rally above its prior resistance peaks. Two weeks ago there was an attempt by the ADI to break out higher, but it managed to rise only slightly above the 4,703.58 March high, reaching 4,723.42. Aggressive selling then came in reversing a three-day advance. The price range to watch for the next direction is the two week high of 4,703.58 and low of 4,620.31.

If a bullish breakout occurs watch for the next resistance zone to be hit, starting around 4,790. That price begins a range up to the November 2014 peak of 5,004.10.

On the downside, the first range of potential support is from approximately the 55-day ema, now at 4,577, and the 38.2 per cent Fibonacci retracement level at 4,543.41.

Stocks to watch

Islamic Arab Insurance (Salama) was the fifth best performing stock last week in the Dubai market, rising 6.76 per cent to close at 0.60, and on higher volume. Volume rose to the second highest level in a year. Even with that advance in price the stock remains within a consolidation range, where it has been for the past two weeks. The pattern has been forming just under resistance of the 200-day ema (0.629) and above support of the 55-day ema (0.545.

Sometimes a rise in volume occurs prior to price breaking out. That could be the case here, but we won’t know until Salama first rises above 0.622, with strength confirmed on a breakout above 0.643. A move above the higher price level puts the stock back above its 200-day ema for the first time since mid-May 2014, providing another sign that the uptrend off the December 2014 low is gaining momentum.

The next resistance zone would then be first around 0.74/0.75, with the next higher target around 0.88. But first it needs to get above the 55-week ema, which is now at 0.661. Salama has been below its 55-week ema since May 2014.

Support is at 0.54, and a drop below it makes the above bullish scenario less likely in the near-term.

Bruce Powers, CMT, is president of WideVision and chief technical analyst at www.MarketsToday.net. He is based in Dubai.